Nigeria and other countries in sub-Saharan Africa may continue to suffer high production cost and reduced output as global oil and gas stakeholders strive to reduce cost of production per barrel of crude oil. These countries, aside Nigeria, include Senegal, Angola and Ghana, among others,
According to Sebastian Spio-Garbrah, Chief Africa Frontier Markets Analyst, DaMina Advisors LLP, Ontario, Canada, the high cost of production is due to the high cost of fund as the United States(US) interest rates continue to increase.
Spio-Garbrah stated that US used to have the lowest interest rates, but the interest rates have continued to soar and because cost of fund is a major component in oil operations, countries that do not have access to funds with low interest rates such as Nigeria, may have to contend with high production cost.
In his presentation titled: “Beyond Oil – A New Africa: Risks & Opportunities”, delivered at the 11th Annual sub-Saharan Africa Oil and Gas Conference at Marriot Westchase, Houston, Texas, Spio-Garbrah said Nigeria and some other African countries are currently battling with major production decline over rising US benchmark interest rates, adding that the production challenge include other factors.
According to Spio-Garbrah, the rising US interest rates will hit the Net Present Value (NPV) of high risk African oil producers, adding that rising interest rates almost always leads to financial crisis/recession
He also listed some other factors affecting Nigeria and other African countries production target to include the Paris climate change accords & effects, which according to him, were signed by 195 countries, Saudi-Russia détente on oil production, rise in US and non-US Shale oil exports.
Others are domestic demands for indigenisation/stronger local content laws and rising regulatory risks in mining sector.
On the Paris climate change agreement, he said diesel got the first hit and followed by gasoline, adding that, China, India, California, Paris, Madrid, Mexico City and Athens are to ban diesel vehicles from 2025.
“Copenhagen wants to ban new diesel cars from entering the city from 2019. France and Britain will ban new gasoline and diesel cars by 2040. Switch by road freight truckers from diesel to natural gas/gasoline is a major structural change, which will lead to surging demand for gasoline, but ultimately lower prices.
“Move away by EU/US car/truck manufacturers from diesel will force growing emerging economies to use more gasoline and natural gas.”
On what African oil exporters can do to get more value from its oil, Spio-Garbrah advised that they should build more local refineries to develop domestic petrochemical capacities, citing the 650,000 barrels per day (bpd) Dangote refinery as a step in the right direction.
He noted that oil exporters should stabilise their macro-economic environment to make investment climate more attractive by reducing domestic interest rate to spur local borrowing.
He said they (oil exporters) should enter into long term technology and training partnerships with major international oil companies (IOCs) and National Oil Companies (NOCs) to professionalize local technical capacities, hedge future sales to reduce export income volatility and rapidly de-fossilize major economic exports. Reduce overall costs of doing business in order to bring down the average cost of production while buying into US shale oil companies to access technology and critical intelligence,’’ he advised.
Source: The Nation